Originally published by Chamber of Merchants
$1308: That was the height of gold’s rally during US trading. Gold is closing around $1297 to wait for Asian trading.
The trend has been set with the next resistance point at $1308 with support at $1287-$1298.
Interesting to note, the US gold miners had a retracement following the Federal Open Market Committee announcement of putting rates on hold.
Interest rates were on hold, the ADP private payrolls were lacklustre, gold is trading at its highest in weeks, yet the U.S miners are down.
It’s noise: Many traders/investors are about to get distracted and confused, not understanding the fundamental shift underway.
First, let me brief you on the latest.
Overview
Gold took approximately four weeks to manoeuvre from $1246 to $1278. During that time many traders missed the boat by:
a) Waiting too long for confirmation signals to enter. Well, if traders were scared at $1246, then they were probably scared at $1262 and $1278. Heck, they’re probably still scared at $1298, waiting for someone to give them the nod to go ahead. No one can give you enough comfort too pull the trigger. And if they do, you’ll blame them when there’s a pullback saying “I knew I shouldn’t have entered yet”. Except there is no one else responsible for your trades except you. Not your spouse or partner, not your family members or friends. They know as little as you do. So looking into their eyes for support to pull the trigger is just another way of trying to share the blame for when things go wrong. A Merchant is wholly and fully aware of the risk a trade entails and solely accepts the outcome of the transaction. It can be frightful, but with time, it gets easier. When you’ve taken losses like I have, you really start to feel less, whether price goes down or even up. So stick with it, gain experience and don’t bet the farm if you’re starting out. $5 profit or $5000 profit: regardless of the amount, a trade in the right direction is a move closer to becoming a more successful and consistent trader.
b) Entering, but setting stop losses at personal levels instead of market levels. The move from $1246 to the present $1298 was designed to kick out as many stop losses as possible. Remember, stop losses are visible to the big boys and funds. Whether we like it or not, you and I are similar to many, many, many people that think exactly the same: we have the same fears, same risk aversion, same need for certainty. The big boys barge into the nursery to steal the teddy bear (stop losses), and we, the toddlers allow them to do it. Helpless and teary eyed we say, “oh well”, as we struggle to figure out how to navigate this crazy, crazy thing called the stock market.
Let us continue…
Gold took a few weeks to gain roughly $40 from $1246 to $1276. However it took only a few days since then to break the $1300 mark.
Beautiful, isn’t she?
It’s clear that we broke back into the trading channel we lost in early October. So it wouldn’t surprise me in the least if we test that support around $1285. We might even knock out a few stops along the way to get the adrenaline running.
We have a combination of political and economic factors which are paving the way for the next rally. However, I’ll save that for another post when it becomes relevant .
For now, I’ll quickly explain why the miners pulled back in the United States, even though gold is still up.
The reason gold pulled back from the $1305 is due to the $1308 level being a strong psychological resistance point. I mentioned that in yesterday’s post when we were still trading around the $1280’s.
The boost past $1300 was received when the ADP Private Payroll numbers came in under estimate at 147,000 jobs. That is lower than last month, and only a stone throw from the lows of 130,000+- from 2013. So, not great at all. This obviously reduces the probability of a rate hike in December.
Additionally, the market continued its correction. The S&P 500, Nasdaq 100 and Dow Jones Industrial Average all ended around another half a percent in the red, hence the increased safe haven buying.
Gold and Silver safe haven buying was also encouraged by the rising uncertainty of the election outcomes. The show gets more dramatic each day and the uncertainty will continue to ripple through global markets for some time yet.
The final economic milestone for the trading day was the Fed decision to keep rates on hold. While that is good for gold and bad for the US Dollar, it did signal the exit for many traders who were simply betting on that particular outcome.
Once the outcome was achieved, they sold out of their positions in a profit taking move. This is especially in light of the expected rate hike for December which the Fed again mentioned is very likely.
There’s one catch though:
Even though Janet Yellen, the FOMC chair, indicated that a December rate is appropriate (isn’t it always appropriate?) , there is one more economic indicator that will set the tone for the next few weeks: Non-Farm Payrolls this Friday.
If the Non-Farm Payrolls numbers come in around estimates then it will be an assumption that December’s rate hike is definitely on the table. However, if the payroll numbers come in below estimates, and I think they might be below estimates, then the probability of a rate hike in December will be significantly reduced which will be reflected in the price of Gold from Friday onwards.
What to expect?
I expect a retracement in the Gold price to test the supports. However, there is a very good chance that the US Dollar will continue to weaken as the election drama continues to unfold, while the Euro and GBP continue to strengthen.
It’s not possible to predict the day by day movements, but if you’ve been with me from the beginning you’d know that I believe gold is in a bull market and that I believe that entering anywhere in a bull market will still lead to a profit as the price of Gold reaches higher highs.
Friday is the day where gold will either enter the next leg up or continue to consolidate depending on the payroll number.
In the meantime, there is nothing for a Merchant to do except be patient.
While some traders get nervous now, a Merchant keeps focused on the big picture.
What the big picture? Here it is:
Just Getting Started
So, focus.
This is roughly day 3 of a rally in the gold price. We did not break lower than $1246 and already we tested $1305.
Does that sound like trend that wants to roll over and die? No.
If Gold is in a bull market then keep focused on the big picture. Gold can easily test the previous high of $1370 something. If it has the momentum to break through then $1400-$1500 is the obvious next step.
When we were at $1246 I said we’d be at $1300 soon, however unlikely it seemed at the time.
Now again, I say that however unlikely it appears, we will soon be at $1350-$1400.
All I need to do with my portfolio in gold and silver is: nothing.
The less I do right now, the less damage I incur on future profits.
For a Merchant, sometimes the best trade is no trade at all.
We made it through $1246, $1262, $1275, $1287 and now we’re at $1290 something. In a few day or weeks I’ll be glad to add $1350 to the check list. Minor fluctuations are unavoidable. A Merchant trades the bigger move, the bigger picture.
Patience.